TOKYO (Reuters) - Japanese manufacturers' confidence improved for a sixth straight quarter, the Bank of Japan tankan survey showed, but they turned negative on the outlook in a sign that yen strength could derail the fragile economic recovery and spur the central bank to ease policy next week, according to Reuters on Wednesday, Sept 29.
The closely watched survey for the three months to September showed big firms plan to raise capital spending at a slower pace than expected, as a recovery in exports slows due to a strong yen and moderating overseas demand.
The BOJ has struggled to reach a consensus on whether it should ease policy at next week's meeting, but firms' cautious views and slack spending plans could tip the balance in favour of those calling for more easing.
Japan's government intervened earlier this month to weaken the yen, and some economists say additional monetary easing is needed to ensure that intervention is successful in shielding the economy from a strong currency.
"It's a better-than-expected headline number (for the September big manufacturers' index), but a worse-than-expected (December) expectations number," said Naomi Fink, Japan strategist at Bank of Tokyo-Mitsubishi UFJ.
"The BOJ was really focused on corporate sentiment and the yen strength is an obvious factor. They'll be under greater pressure to ease from the government ... at the meeting next week."
PRESSURE TO EASE
The yen took the tankan in stride and last stood at 83.94 yen to the dollar, little changed from just before the data's release.
Japan's Nikkei average rose about 1 percent while the lead 10-year Japanese government bond futures rose to a seven-year high, although the markets were largely taking their cues from activity abroad, with a drop in a U.S. consumer confidence indicator spurring a gain in U.S. Treasuries.
The index for big manufacturers' sentiment improved to plus 8 in September from plus 1 in June, exceeding the median market forecast of plus 6.
But the index for December was seen at minus 1, showing firms expect conditions to deteriorate over the next three months and that pessimistic views outnumber optimistic ones.
Big firms plan to increase capital spending by 2.4 percent in the financial year to March 2011, less than the market's median forecast for a 4.2 percent rise.
Big manufacturers' sentiment improved for a sixth straight quarter to the highest level since March 2008, while big service-sector firms' confidence rose for a sixth straight quarter to the highest since June 2008.
The BOJ will next hold a regular policy meeting on Oct. 4-5. Sources have told Reuters that the BOJ could loosen policy if the recovery is deemed by the board to be under threat, with an increase in government bond buying and a further expansion in its cheap fund-supply tool emerging as the most likely options.
Still, some BOJ officials have indicated that they want to wait until there is further evidence that the strong yen and slowing overseas growth are hurting the economy.
The BOJ may also be reluctant to pursue aggressive easing because its decision could end up having limited impact if the Federal Reserve eases at its next rate review on Nov. 2-3, causing the yen to appreciate further against the dollar.
Japan intervened in the currency market on Sept. 15 by selling yen for the first time in more than six years as the yen's surge to a 15-year high versus the dollar threatened to derail Japan's economy and worsen deflation.
The closely watched survey for the three months to September showed big firms plan to raise capital spending at a slower pace than expected, as a recovery in exports slows due to a strong yen and moderating overseas demand.
The BOJ has struggled to reach a consensus on whether it should ease policy at next week's meeting, but firms' cautious views and slack spending plans could tip the balance in favour of those calling for more easing.
Japan's government intervened earlier this month to weaken the yen, and some economists say additional monetary easing is needed to ensure that intervention is successful in shielding the economy from a strong currency.
"It's a better-than-expected headline number (for the September big manufacturers' index), but a worse-than-expected (December) expectations number," said Naomi Fink, Japan strategist at Bank of Tokyo-Mitsubishi UFJ.
"The BOJ was really focused on corporate sentiment and the yen strength is an obvious factor. They'll be under greater pressure to ease from the government ... at the meeting next week."
PRESSURE TO EASE
The yen took the tankan in stride and last stood at 83.94 yen to the dollar, little changed from just before the data's release.
Japan's Nikkei average rose about 1 percent while the lead 10-year Japanese government bond futures rose to a seven-year high, although the markets were largely taking their cues from activity abroad, with a drop in a U.S. consumer confidence indicator spurring a gain in U.S. Treasuries.
The index for big manufacturers' sentiment improved to plus 8 in September from plus 1 in June, exceeding the median market forecast of plus 6.
But the index for December was seen at minus 1, showing firms expect conditions to deteriorate over the next three months and that pessimistic views outnumber optimistic ones.
Big firms plan to increase capital spending by 2.4 percent in the financial year to March 2011, less than the market's median forecast for a 4.2 percent rise.
Big manufacturers' sentiment improved for a sixth straight quarter to the highest level since March 2008, while big service-sector firms' confidence rose for a sixth straight quarter to the highest since June 2008.
The BOJ will next hold a regular policy meeting on Oct. 4-5. Sources have told Reuters that the BOJ could loosen policy if the recovery is deemed by the board to be under threat, with an increase in government bond buying and a further expansion in its cheap fund-supply tool emerging as the most likely options.
Still, some BOJ officials have indicated that they want to wait until there is further evidence that the strong yen and slowing overseas growth are hurting the economy.
The BOJ may also be reluctant to pursue aggressive easing because its decision could end up having limited impact if the Federal Reserve eases at its next rate review on Nov. 2-3, causing the yen to appreciate further against the dollar.
Japan intervened in the currency market on Sept. 15 by selling yen for the first time in more than six years as the yen's surge to a 15-year high versus the dollar threatened to derail Japan's economy and worsen deflation.
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